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Powered by strong gains in both the Standard & Poor's 500 and the Russell 2000, the 7,857 U.S. diversified-stock funds, with $3.9 trillion in assets, climbed 5.29% in the third quarter, pushing their 12-month gains to 25.5%. The strong equity performance more than doubled the 2.48% quarterly returns of general bond funds, and tripled their 8.33% gain over the previous year.

But investors kept pouring money into bond funds, despite middling returns. During August, bond funds took in $32.4 billion, giving them 12 straight months of inflows, while their equity counterparts lost $13.5 billion during the same period, which made 16 consecutive months of outflows. In September alone, the $278 billion
Pimco Total Return
fund (PTTAX) attracted $2.8 billion in new money, according to Morningstar.

Even such fixed-income stars as Pimco's Bill Gross and BlackRock's Larry Fink have taken note of stocks' relative value in light of bonds' currently tiny yields. Still, a large number of investors don't want to give up the security of steady income, however small, for the uncertainty that still surrounds stocks. "It's hard to see what will change this trend until interest rates turn higher," says Kevin McDevitt, editorial director at Morningstar.

Ben Bernanke's third round of quantitative easing proved to be at least a temporary charm, as just about every asset class rose in value during the third quarter. In some cases, previously dragging stocks were revived: Precious-metal funds soared 22.39%, natural resources climbed 8.54%, and riskier investments like India funds posted double-digit gains. Within the fixed-income group, high-yield funds rose 4.29%, as the central bank vowed to buy billions more in mortgage securities each month. More generally, large companies beat small, value topped growth, and foreign beat domestic. The only big mistake an investor could make? Leveraged bearish stock-exchange-traded funds, which dropped 10.63% for the quarter and 36.28% for the trailing year.

The
Dynamic Gold & Precious Metals
fund (DWGOX), up 27.7% in the period though flat for the past 12 months, prospered by investing in mining companies that enjoyed a steady recovery during the past quarter. One particularly rich strike was Australia's
Papillon Resources
(PIR.Australia), which reported good results at a project in Mali, says Robert Cohen, portfolio manager of the $44 million fund.

Energy also made a U-turn in the quarter. After falling 17.5% in the second quarter because of the slowdown in demand from Europe and Asia, the price of oil vaulted 8.5% higher in the third, as rising tensions in the Middle East fixed investors' attention on supply. Commodity energy funds were up 8.21% but down 0.39% for the past year.

OVERALL, LARGE-CAP GROWTH led all diversified equity funds, rising 6.28% during the quarter to bring 12-month returns to 27.19%. The $676 million
Thornburg Core Growth fund
(THCGX), up 10. 59% in the third period and 43.36% over the trailing 12 months, credits its outperformance to opportunistic buying when stocks sagged in the second quarter. That allowed it to add a number of high-quality stocks, particularly in technology, at bargain-basement prices, says portfolio manager Gregg Dunn.

HARD-HIT OVERSEAS MARKETS enjoyed the third quarter. World equity funds increased 6.63%, bringing one-year gains to 16.52%. Aside from India's surprising turnaround, the funds at the heart of the world's worries, European funds, rose 8.77% for the quarter and 19.38% for the past year.

Long-suffering Japan funds delivered the worst performance, falling 0.55% for the quarter and 0.51% for the trailing year.

Almost anywhere but Tokyo, it was a great quarter for stocks. But fixed-income funds took in an estimated $3.1 billion in the first week of the fourth quarter; equity funds saw $2.8 billion leave. Given bonds' tiny yields, someone's leaving money on the table.